US v. Victoria Sprouse, No. 11-4715 (4th Cir. 2013)
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UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 11-4715 UNITED STATES OF AMERICA, Plaintiff Appellant, v. VICTORIA L. SPROUSE, Defendant Appellee. Appeal from the United States District Court for the Western District of North Carolina, at Charlotte. Martin K. Reidinger, District Judge. (3:07-cr-00211-MR-2) Argued: October 25, 2012 Decided: April 8, 2013 Before DUNCAN and DIAZ, Circuit Judges, and Catherine C. EAGLES, United States District Judge for the Middle District of North Carolina, sitting by designation. Reversed and remanded by unpublished per curiam opinion. ARGUED: Amy Elizabeth Ray, OFFICE OF THE UNITED STATES ATTORNEY, Asheville, North Carolina, for Appellant. William Robert Terpening, NEXSEN PRUET, PLLC, Charlotte, North Carolina, for Appellee. ON BRIEF: David A. Brown, OFFICE OF THE UNITED STATES ATTORNEY, Charlotte, North Carolina, for Appellant. Peter C. Anderson, ANDERSON TERPENING PLLC, Charlotte, North Carolina, for Appellee. Unpublished opinions are not binding precedent in this circuit. PER CURIAM: Victoria Sprouse was convicted of various offenses arising from a mortgage fraud scheme. Prior to sentencing, the district court ordered a new trial as to all offenses in light of the Supreme Court s decision in Skilling v. United States, 130 S. Ct. 2896 (2010), concluding that its honest services instructions to the jury constituted plain error. fraud On appeal, the government contends that the district court misapplied the burden of proof with respect to the substantial rights prong of the plain error analysis. We agree with the government that it was Sprouse s burden to show that the instructional error affected her substantial rights, which in this context required Sprouse to show that the jury actually convicted her based upon the error. Because Sprouse failed to satisfy that burden, we reverse the district court s order granting a new trial and remand for sentencing. I. A. Between 2000 and 2004, Victoria Sprouse provided services as a closing attorney and notary public for approximately 210 real estate transactions in and 2 around Charlotte, North Carolina. 1 defraud The transactions were in fact part of a conspiracy to mortgage lenders, from $235,000 in attorney fees. which Sprouse received nearly The majority of these fraudulent transactions were house-flipping schemes. In a flip transaction, a property is sold by one party to another and, on that same day or very shortly thereafter, resold to a third party at a higher price. The first transaction is a cash sale, and the inflated re-sale is made possible by a loan from an unsuspecting lender. inflated real-estate The loan is premised on an appraisal, falsified documents, and fake title opinions. benefit either fraudulently through performed, the or loan application Participants of the scheme collection through a of cut fees of for the work profits generated from the re-sale of the property at an inflated value. To facilitate transactions, the Sprouse opinions, filed recording of and financing prepared recorded documents to and and false hide closing of submitted deeds the of source the false trust, of flip title delayed subordinate financing, falsely notarized and dated documents, and otherwise falsely verified the accuracy of closing documents. 1 An example We summarize the evidence in the light most favorable to the government, the prevailing party at trial. See United States v. Jefferson, 674 F.3d 332, 341 n.14 (4th Cir. 2012). 3 of a typical house-flipping scheme will help illustrate Sprouse s role in the conspiracy. In 2001, Karin Jo Sholtis purchased several properties and immediately resold them to Stephen Hawfield. Sprouse acted as the closing attorney on both halves of the flip transactions. When Sholtis visited Sprouse s office, Sprouse had her sign a stack of documents for each transaction within minutes of one another. Sprouse offered no explanation for what Sholtis was signing, and told Sholtis not to date anything because Sprouse would fill everything in herself. J.A. 284, 325-26. Although Sholtis brought no money with her, Sprouse signed settlement statements certifying that Sholtis brought a total of $504,000 in cash to the closing. At one point during the closing, Sprouse asked Hawfield for payment and read a series of amounts to him while Hawfield wrote checks for amounts that matched the cash purportedly brought by Sholtis. Later attorney that as immediately year, Sholtis re-sold Sprouse purchased them to again a acted number Hawfield. of as the closing properties Although the and closing documents were purportedly signed by Sholtis, Hawfield actually forged her signature on each of them, and Sprouse notarized each of the deeds, attesting that Sholtis had personally appeared before her to sign. Sprouse also signed settlement statements certifying that Sholtis brought approximately $900,000 in cash 4 to the closing, when Sprouse knew that Hawfield actually provided the money. The flip scheme we describe is representative of the vast majority of the 210 transactions that the government alleged to be fraudulent. residence The remaining transactions were either primary schemes or decorator distribution schemes. The primary residence scheme was similar to a traditional houseflipping scheme, except that the buyer on the second half of the transaction would falsely represent on the loan application that he would be using the property as his primary residence. As a result, the buyer would receive more favorable financing terms. The decorator distribution scheme, on the other hand, involved the co-conspirators obtaining a loan with favorable terms by falsely representing that cash from buyer was provided as down payment. The cash purportedly paid by the buyer was actually provided after decorator closing disbursements and drawn from the from so-called lender. The interior interior decorations were never performed, and the scheme allowed the buyers to obtain loans with beneficial terms without providing any down payment. Sprouse s involvement was the same in these schemes as in the Sholtis/Hawfield transaction, as she would falsify documents and fail to perform her duties as an attorney and notary public on closing documents. B. 5 A federal grand jury indicted Sprouse on three counts of mail fraud, nine counts of bank fraud, three counts of conspiracy to commit fraud, 2 two counts of conspiracy to commit money laundering, two counts of promotional money laundering, one count of money laundering, four counts of perjury, and three counts of obstruction of justice. 3 Each count of the indictment that charged a scheme or artifice to defraud (fifteen in all) included language accusing Sprouse of involvement with a scheme to defraud financial institutions and others of money and their intangible right to honest services. because the money laundering J.A. 32-80. offenses relied In addition, upon the fraud charges as predicate crimes, they too implicitly incorporated the honest services language. At trial, the government called Richard Poe. Poe, who at the time of trial was an attorney, 4 was qualified as an expert on 2 Sprouse was charged with two counts of conspiracy to defraud the United States, in violation of 18 U.S.C. § 371. The indictment charged that the objects of the § 371 conspiracies included mail, wire, and bank fraud, as well as making false statements to banks. In a separate count, Sprouse was also charged with conspiracy to defraud financial institutions and others through mail, wire, and bank fraud, in violation of 18 U.S.C. § 1349. 3 The district court severed the perjury and obstruction of justice charges for the purposes of trial. The government ultimately dismissed those charges without prejudice. 4 As the district court noted in its attachment to its order granting Sprouse s motion for new trial, Poe was disbarred in (Continued) 6 an attorney s role and ethical duties in residential real estate transactions. He explained the residential loan application process and the closing attorney s responsibilities related to the transaction. attorney, title Sprouse s opinion, reviewing Specifically, Poe testified that as closing the duties included creating the HUD-1 parties contract preparing settlement for the preliminary statement, accuracy. Poe and also testified that the closing attorney is presumed to represent both the buyer and the lender, and serves as the eyes and ears of the lender, notifying the lender if something occurs at the closing transaction that the lender needs to know about. J.A. 147, 175. After hearing testimony from twenty-seven other witnesses over eight days, and considering 597 exhibits, the jury found Sprouse guilty of all counts except one mail fraud offense. 5 In June of 2010. There has been no suggestion, however, by either the district court or Sprouse, that Poe s testimony was not truthful or accurate. 5 Sprouse testified in her own defense. She denied being part of a conspiracy to defraud even while she admitted that a number of the closing documents she had either signed or notarized were false. According to Sprouse, she had been sloppy and inattentive in her law practice, but she denied that she intended to defraud anyone. Sprouse also called witnesses who described how common it was to make a mistake in the processing of closing documents. Finally, several other witnesses attested to Sprouse s honesty and integrity. 7 addition, the jury found, in special verdicts, that the objects of the §§ 371 and 1349 conspiracies included mail fraud, wire fraud, and bank fraud, and that the objects of the two § 371 conspiracies also included making false statements to banks. C. Prior to sentencing, the district court ordered the parties to file briefs addressing the impact of the Supreme Court s decision in Skilling v. United States, 130 S. Ct. 2896 (2010), on any issue remaining in [the] case. Skilling, a case decided three months J.A. 2113-15. after In Sprouse was convicted, a former Enron executive was charged with conspiracy to commit securities and wire fraud. indictment alleged that the object 130 S. Ct. at 2908. of the conspiracy The was to deprive company shareholders of their right to Skilling s honest services. Id. Appealing his conviction, Skilling argued that the honest services fraud statute was unconstitutionally vague, and therefore violated his due process rights. The Court agreed and confined the Id. at 2928-29. reach of § 1346 honest-services fraud to bribery and kickback schemes. Id. at 2931. Before the district court, the government conceded that because no bribery or kickbacks had been alleged in Sprouse s case, the court should not have instructed the jury that it could convict Sprouse for fraud on an honest-services theory. 8 But because Sprouse did not object to the instructions at trial, the government argued it was her burden to show a plain error warranting relief. Applying the standard, the government contended that Sprouse could not show that the jury in fact convicted her based on the now-improper honest-services theory because the government had presented ample evidence at trial to support the convictions on a valid theory of pecuniary fraud. Alternatively, the government argued that the motion for a new trial should, at least, be denied as to the jury s verdicts on the § 371 objects conspiracy of each of counts the because the conspiracies jury found included that making the false statements to a bank, a separate offense from the mail and wire fraud objects for which the court gave the honest-services instruction. Sprouse, on the other hand, disputed that the plain error standard applied, insisting that the error required the court to vacate her convictions and grant a new trial because it was impossible to know that the verdict was not based solely on the invalid honest services theory. J.A. 2122-27. Reviewing the instructions for plain error, the district court first determined that the honest services theory of the case had so permeated the proceedings . . . that it is impossible to tell whether the jury may well have convicted the Defendant based entirely on behavior that does not violate the 9 statute. J.A. 2412. government s Second, the district court rejected the contention demonstrated that rested separate, on a that Sprouse s the two valid special § 371 theory, verdict conspiracy and form convictions therefore should be affirmed. Highlighting statements from the government s opening statement and closing arguments, the court concluded that the overarching theme of the case was honest services, rather than pecuniary, fraud, and that nearly all of the evidence presented by the government was probative of the honest-services theory only. affected In the the prejudicial court s outcome evidence view, the the trial of that honest-services due tainted otherwise sustainable counts. to the a error also spillover jury s verdict of on As a result, the district court granted Sprouse s motion for a new trial. This appeal followed. II. The issue before us is whether the district court, in granting Sprouse s motion for a new trial, properly concluded that Sprouse had shown plain error in the jury instructions. The government s principal argument is that the district court misapplied the plain error standard by requiring Sprouse to show only that it was impossible to tell whether the jury convicted 10 her based upon admittedly defective instructions, rather than that Sprouse s convictions actually resulted from the instructional error. According to the government, if the district court could not tell whether the jury convicted Sprouse based on an honest-services theory, then plain error review dictates that the verdicts be affirmed because the government presented ample evidence of a money-or-property theory of fraud that was untainted by the Skilling error and upon which the jury could have relied to convict. Relatedly, the government argues that the district court should have been confident that the jury s verdicts rested on a proper theory of conviction because the special verdicts on the § 371 conspiracy counts necessarily show that the jury convicted Sprouse based on what the government describes as a conventional money-or-property theory of bank fraud, wire fraud, and mail fraud. Appellant s Br. at 42. Alternatively, the government argues that, at a minimum, the district court erred in vacating Sprouse s convictions on the § 371 conspiracy counts because the jury specifically found an object of the conspiracy--the making of a false statement under § 1014--that was untainted by the honest-services evidence. We agree with the government on its principal argument, which is fully dispositive of this appeal. Accordingly, we do not discuss further the government s alternative contentions. 11 A. Federal Rule of Criminal Procedure 33 provides that a trial court may, on a defendant s motion, grant a new trial if the interest of justice so requires. court should sparingly, and exercise that its it We have observed that a discretion should do so weighs heavily against the verdict. to only grant when a new the trial evidence United States v. Perry, 335 F.3d 316, 320 (4th Cir. 2003) (internal quotations omitted). We review a district court s decision to grant a motion for new trial for abuse of discretion. United States v. Robinson, 627 F.3d 941, 948 (4th Cir. 2010). Furthermore, [a] district court abuses its discretion when it acts arbitrarily or irrationally, fails to consider recognized factors constraining its exercise of discretion, relies on erroneous factual or legal premises, or commits an error of law. United States v. Wilson, 624 F.3d 640, 649 (4th Cir. 2010). In this case, Sprouse s motion for a new trial was premised on an instructional error to which she did not object. When a defendant fails to object to a jury instruction, even if there were no legal grounds for challenging the instruction at the time it was given, a district court should deny a motion for a new trial in the absence of plain error. Fed. R. Crim. P. 52(b); see also United States v. Pelisamen, 641 F.3d 399, 404 (9th Cir. 2011) (citing Johnson v. United States, 520 U.S. 461, 12 464-68 (1997)). To prevail, a defendant must demonstrate that (1) there was an error, (2) the error was clear or obvious, rather than subject to reasonable dispute, (3) the error affected the defendant s substantial rights, and (4) the error seriously affects the fairness, integrity, or public reputation United States v. Marcus, 130 S. of the judicial proceedings. Ct. 2159, 2164 (2010); see also United States v. Olano, 507 U.S. 725, 732-35 (1993). The government concedes, and we agree, that Sprouse met her burden on the first two prongs of the test. our attention to whether Sprouse affected her substantial rights. has Therefore, we turn shown that the error Our analysis is governed by United States v. Hastings, 134 F.3d 235 (4th Cir. 1998), where we clarified the showing that a defendant must make to satisfy the substantial rights prong in the context of jury instructions. The defendant in Hastings was convicted of multiple crimes, including using or carrying a firearm during and in relation to a drug trafficking § 924(c)(1). offense, Id. at 237. in violation of 18 U.S.C. A subsequent Supreme Court decision rendered the jury instructions regarding the meaning of the term use, as used in that count, erroneous. Id. Reviewing the defendant s conviction for plain error, we held that a defendant is entitled to reversal only upon a showing that the error 13 affect does substantial rights, that is, that the actually affected the outcome of the proceedings. (quoting Olano, U.S. at throughout standard 507 735). the We opinion, Id. at 240 reiterated stating error that this the high burden requires [a defendant] to show that the jury actually convicted him based (emphasis upon [the added). erroneous instruction]. Importantly, it is not Id. enough at for 243 [the defendant] to establish that it is impossible to tell whether the verdict returned by the jury rested solely on the misinstruction, for such a showing would establish only that the error was not harmless. Id. Applying this standard to the defendant in Hastings, we held that he could not establish that the instruction at issue had affected his substantial rights because under in the making erroneous the factual finding instruction, the necessary jury to convict necessarily found facts establishing [a conviction under the valid instruction]. Id. at 244. Sprouse attempts to complicate Hastings s straightforward holding, arguing reasonable that we probability intended standard. to create In a more support lenient of this contention, Sprouse notes that one of the cases cited by the Hastings court uses language to that effect. See id. at 240 (citing United States v. McKinney, 954 F.2d 471, 476 (7th Cir. 1992)). Sprouse asks us to modify the Hastings holding by 14 inserting probably Appellee s Br. 16. or likely in place of actually. We decline that invitation, however, as it would rewrite our clear and unmistakable holding in Hastings. B. In district finding that court proceedings the concluded that it instructional that was the error was plain, the error so permeated the to tell whether, with impossible respect to any of the counts for which the court had given an honest-services instruction, based upon a valid theory. the jury had J.A. 2412. convicted Sprouse The district court also believed that the errors regarding honest service fraud also could have affected the outcome of the trial by allowing for spillover of prejudicial sustainable count. evidence into an otherwise J.A. 2425. We conclude that the district court s ruling misapplied our holding in Hastings. We made clear there that a conviction should not be reversed for plain error simply because it is impossible to instruction. tell whether it rested See Hastings, 134 F.3d at 243. on an invalid Moreover, although Skilling held that an error occurs when a jury is instructed on alternative verdict objects that may of rest a conspiracy on a and legally returns invalid a general theory of honest-services fraud, that case also teaches that the error does not necessarily require reversal in every case. 15 Skilling, Indeed, when Skilling itself was remanded 130 S. Ct. at 2934. to the Fifth conviction Circuit, despite that the court affirmed honest-services because it found the error to be harmless. Skilling, 638 harmless error F.3d 480, review, 483-84 as the (5th conspiracy instructional error See United States v. Cir. defendant the had 2011) (applying objected to the honest services instructions at trial), cert. denied, 132 S. Ct. 1905 (2012). The district court here concluded that because it was impossible to tell the ground upon which the jury rested its verdicts, Sprouse had satisfied her burden under plain error review. Sprouse, however, was required to demonstrate that her convictions theory. actually The rested district on court the instead invalid honest-services effectively flipped the burden of proof by requiring the government to show that the error was not harmless. 6 This mistake was an error of law that we are bound to correct. The substantial district rights court as to also all of concluded that the services-related honest Sprouse s convictions were necessarily affected by the instructional error 6 We acknowledge that the district court s order in certain places purports to apply plain error review. But as we explain infra, the district court s analysis is flawed nonetheless in that it fails to give proper weight to the overwhelming evidence supporting the government s theory of pecuniary fraud. 16 because all of the evidence presented related to honest services fraud. at J.A. 2415. [Sprouse s] trial We do not agree with the district court s view of the evidence. It bears remembering that the government alleged two theories in support of the fraud charges: conventional pecuniary fraud and fraud based on a deprivation of honest services. government also charged Sprouse with make false statement to lenders. the government at trial that conspiring to The knowingly Many of the statements made by the district court quotes as examples of an overarching theme of honest-services fraud are equally relevant to the charges of pecuniary fraud and making false statements to lenders. See, e.g., J.A. 2417 (the government s opening statement describing Sprouse s dishonesty), 2423 (the forging of Similarly, Sprouse s government s documents while it closing and is arguments falsely certainly misrepresentations and describing Sprouse s notarizing warranty true the evidence of her that violations deeds). of ethical duties as an attorney and a notary public during real estate closings was relevant to the government s honest-services theory of fraud, the evidence was equally probative of Sprouse s knowledge and intent to defraud with respect to the pecuniary fraud theory, as well as Sprouse s knowledge as to the counts alleging a conspiracy to make false statements to lenders. 17 In fact, the absence of a mens rea was Sprouse s principal defense at trial. testimony, admitted and that processing In her opening statement, during her trial again in she closing had her summation to sloppy and been documents, advantage of by others. which led the jury, Sprouse inattentive to her being when taken Sprouse insisted nonetheless that she lacked the specific intent to commit the charged offenses. For that reason, evidence describing Sprouse s failure to discharge her duties as an attorney and notary public in residential real estate transactions, government s while now-invalid admittedly honest-services probative theory, of the was also relevant to show Sprouse s intent and knowledge with respect to those theories upon which a jury could properly convict. Similarly, the district court s characterization of the pecuniary fraud theory as an afterthought we think ignores the interrelation of the two theories. In our view, the conduct undergirding each theory of fraud was largely the same, and the facts supporting the banks losses and Sprouse s pecuniary gain were uncontroverted. As a result, the government s evidentiary presentation at trial rightfully focused on whether Sprouse had the requisite intent misrepresentations, and when she forgeries fraud. 18 engaged in underlying both the lies, theories of As to that question, any reasonable jury concluding that Sprouse intended to defraud lenders of her honest services would necessarily have found that she intended to defraud those same lenders of money. By way of example, in the Sholtis/Hawfield transactions--which are representative of the other counts of the superseding convicted indictment Sprouse necessarily of found that alleging honest fraud--had services Sprouse, fraud, with the the would it intent jury have to defraud, falsely represented that Sholtis brought money to the closings, and notarized Sholtis s forged signatures, thereby denying the lenders of her honest services while purporting to act in their interest. pecuniary found Similarly, for the jury to have convicted Sprouse of fraud that represented notarized as to Sprouse, that those with Sholtis Sholtis s same the brought forged transactions, intent money signatures, to to it must defraud, have falsely the closings, and thereby depriving the lenders of a pecuniary interest (i.e., the loan proceeds and attorney fees). Because the evidence showing that the banks suffered a pecuniary loss as a result of the Sholtis/Hawfield transactions was both overwhelming and uncontroverted, no reasonable jury could have convicted Sprouse of honest services fraud, but acquitted her of pecuniary fraud on these facts. We find that the same holds true with respect to the other counts alleging fraud. 19 In sum, because Sprouse failed to object at trial to the Skilling instructional error, it was her burden to show that her convictions instructions. actually rested on the invalid honest-services Sprouse failed to meet that burden here, and the district court abused its discretion in concluding otherwise. III. For these reasons, we reverse the order of the district court granting Sprouse a new trial, reinstate her convictions in toto, and remand the case for sentencing. REVERSED AND REMANDED 20
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